This Could Send Silver Prices Skyrocketing
Silver prices are getting hammered, down for the last 13 sessions, which is the precious metal’s longest losing streak since 1950. Currently trading near $14.15 an ounce, silver prices are down 10% year-to-date and 72% off their high near $50.00, which was hit in April of 2011. The precious metal is taking a beating from the likelihood of a rate hike in 2016 and diminished industrial demand, as China’s economic growth slows. Unfortunately, these narrow-minded views actually underscore why silver prices will soar in 2016.
Is Silver Really Used as an Economic Hedge?
Much has been made of the fact that silver is used to hedge against economic uncertainty. Some people do buy silver to bolster their retirement portfolio, but most people I know don’t hoard silver to barter for goods during Armageddon. Instead, they buy silver like they do stocks: they buy when an excellent opportunity presents itself and they see prices rising in the future. Right now, silver is showing an excellent opportunity.
As mentioned, silver is trading near $14.15 per ounce, which is its lowest range since August 2009. The precious metal’s next support level is near $12.50 an ounce. Granted, the downside potential is not heartwarming and who knows when silver will truly bottom, but silver prices appear to have found short-term support following a pullback in the U.S. dollar and global fears following the terrorist attacks in Paris.
While silver prices are down for the year, they have made numerous double-digit moves to the upside since January. Just as stock investors say they like to buy on dips and sell on news, investors could have done well doing the same with silver. Whether the Federal Reserve raises rates or something triggers economic or geopolitical fears, silver will present investors with real opportunities for growth.
Chart courtesy of www.StockCharts.com
You can hold silver as an economic hedge, but you can also hold silver as a short-term investment. The latter could have provided some solid gains in 2015.
Silver Prices to Soar on Chinese Economic Slowdown
Much of the analysis on the Chinese economy has been on its economic slowdown and why its weak gross domestic product (GDP) growth will put a damper on silver prices. But there’s much more going on here than meets the eye.
China expects its GDP to grow at just seven percent this year. Compared to the U.S., that’s pretty amazing, but for the world’s second-largest economy, it’s the worst performance in more than 20 years. At the same time, this view is a little shortsighted. China is only the second country in the world to achieve an economic output of $10.0 trillion; the other country is the U.S. The third-largest economy, Japan comes in at just $4.6 trillion. (Source: “GDP,” World Bank web site, November 17, 2015.)
Ten years ago, China’s economic output was $1.9 trillion (30% smaller than Germany’s 2014 output). Today, it’s five-times bigger. That means slower growth today of seven percent means greater demand than it did just a few short years ago. Case in point, China’s 2014 GDP (even with low inflation) yielded an extra 4.8 trillion yuan in GDP, virtually identical to its 2007 GDP, when growth ran at an eye-watering 14.2% (and inflation was significantly higher).
Keep in mind that China is the world’s largest producer and consumer of silver. Even at seven-percent GDP growth, demand for silver from China will continue to be robust. On top of that, China recently joined the LMBA silver benchmark-setting process. As a result, China will be pretty motivated to protect and shore up the value of its currency by adding silver to its reserves.
While other factors will continue to negatively impact the price of silver for the remainder of 2015 and into 2016, it’s pretty rich to put all the blame on China’s so-called economic “slowdown.” Plus, silver will still continue to surprise to the upside. It might be short-lived, but it will provide investors with solid short-term gains.